Commentary
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Hey everybody, Peter Zeihan here coming to you from the great wilds and wide opens of Wyoming.
A few of you wrote in about rare earths, which are a series of materials that are used in everything from petroleum refining, to semiconductors, to safety, glass, to sunglasses.
There’s a little bit in pretty much any sort of modern industrial product and with everything with the Chinese going to hell, there is a concern that there’s a trade issue in a national security issue here.
Right now, the Chinese are responsible for producing about 90% of the world’s rare earth metals that are then used in everything else. So if relations with the Chinese really do tank or the trade system falls apart, are we then in a shortage? This is something I spend a lot of time not worrying about at all. A couple of things to keep in mind.
First of all, rare earths, aren’t rare. They are a by-product of metal mining, particularly lead and silver and copper. The problem is with processing. So for example, here in Wyoming, there’s probably enough rare earth for everything that the United States needs for decades to come. It’s also capable of being produced in Texas and Arkansas and New York and California and Colorado.
We have plenty, but they react very similarly when you try to refine them and you have to separate them out first from the, or, and then from one another, that takes a series of hundreds of acid bass to increase the concentrations of what you’re after. And that takes months just to get a few ounces of a stuff. So how this has gone down is the Chinese subsidize everything that they can technically command in order to ensure their population has as many jobs as possible.
They’ve done this for rare earth, just like they’ve done it for everything else. And so by the time we got to the 1990s, the Chinese had been dumping so much money into this industry that they had driven down the price of rare earth through overproduction.
In the 1990s prices for rare earths dropped by about three quarters. And they’ve never really bounced back in that sort of environment. You’ve got a very different cost structure and it drove a lot of the more traditional producers in the United States, in Europe, in Asia, out of business, but the Chinese never stopped over producing. They simply kept going. And so we were able to make a shift to a high-tech telephone commuting system, much more quickly and much more cheaply than we would have been able to otherwise.
And the second that the Chinese started to use this as a geopolitical issue, we found ways to get by without. So while global demand for rare earth has increased over the course of the last 20, 25 years, the concentration of those rare earths in the American system and the global system is actually gone down per unit of output.
Remember when we made the shift from hard drives to solid state drives? That was about the time the Chinese started to beat jerks about this issue. And so we started using less and that gave a solid state, which uses very few rare earths. Now, again, the issue is processing.
You have to build the infrastructure with that issue, having to build the infrastructure, knowing that they’re not rare. Everyone who uses rare earth in numbers has learned the lesson of the Chinese intervening in the market a long time ago. So everybody has six months to a year of reserves built up. In addition to having some savings programs in place in case they need to suddenly do make do with less.
So there’s a buffer. In addition, Malaysia, Australia, the United States, and others have gone ahead and invested in a lot of the infrastructure that we would need to produce rare earth in mass. Now there will be a lag to spin this up of six to 12 months. So if the Chinese were to vanish from the world tomorrow and take the rare earths with them, we would have a period of tightness that would last no more than a year. And then we’d be fine. This is not something I worry about. Next time we’ll talk about something I do. until then…
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